“Marking your own homework” sneer the cynics.  Scornful of process, and scathing in criticism. You see this comment in courtrooms, the Leveson enquiry into media regulation, politicians use it all the time, and were even accused of it in the expenses scandal.  Regulators use it to belittle and criticise firms, processes, systems, even individuals and organisations, and the FCA have a marked liking for seeing external verification.  From there it is but a short hop to the giant industry of compliance.

It is such a killing phrase, and loaded with so many implications about impropriety.  Self audit, process, compliance committees, management workflows and department rules are swept aside by the killer line.

But how unfair it is.  If your firm is large enough to have a risk committee and an audit committee inside, you’ll be familiar with the tension, as one committee checks the other committee and then sets more targets.  A doom loop cycle where finally internal audit sets itself up as the enemy of all, but working inside the same organisation, and with the same overarching objectives.  Actually, compliance can be weird at times.

The Financial Conduct Authority call out the weird in their famous 2016 review of the advice sector, TR16/1: “We found that a key driver of good research and due diligence was a corporate culture of challenge.”

For reasons I will never understand the FCA chose to spin the actual file check industry review as a good news story in 2016.  In the below link, FCA present the findings as evidence of increasing standards, yet the numbers show that half of all files given to the FCA were either uncertain or unacceptable – with the vast majority displaying unacceptable disclosure.  Awful.

https://www.fca.org.uk/publications/multi-firm-reviews/assessing-suitability-review 

The FCA key metric is customer detriment, and FCA note that it is very low in the file check review.  But there is no evidence that it was ever higher as a proportion of the whole, and if that is the only measure that counts, (the big if) then we are all charging a lot of money to clients for higher compliance standards that are used to show compliance to those who regulate us.   In short, if customer detriment is the measure, then, excepting complaints and enforcement and one off back book reviews, such as with DB transfers, Endowments and PPI,  the billion pound compliance industry could be hugely scaled back.  

But of course it isn’t all about customer detriment.  In our game the problems can take years to fester before they emerge as a horror story, and so it is recognised that compliance is about showing your work, sometimes years later when challenged.  It always has been about demonstrating compliance, rather than defending customer detriment. 

The job of a CEO is to bring all this together and get everyone onto the same page of improving and striding towards the same goal.  What we are all trying to do is keep staff inline and working together.  In the compliance framework this means keeping the orchestra in tune with written procedures.  And that leads us back to checking and bureaucracy.  And the best way to do checking and bureaucracy is the digital route.  

Digital means, in some way, a traffic light system, such that unless a step is completed, the light stays red.  Infuriating for some, but without bias and affection, it is so much more compelling.  Hawk-Eye for financial services.  At least we automatons are consistent!

We have positioned BAT to be your compliance management system.  It is designed to help advisers with putting cases together, consolidate compliance and bring management and advisers onto the same page.  The key feature today is an AI filechecking tool, enabling firms to have their files checked in realtime at point of upload.

When I bought IFAC from Brian Cochrane in 2005 it was the largest DA network in the UK, and was run on a shoestring budget with a decentralised network of regional compliance directors auditing, and the CEO himself working two phones on his desk.

The core issue at that time was the endowment crisis.  If you had sold endowments, as most did, you got complaints, and all by post.  

How far this seems from the IT driven self service operation that IFAC provides you today!  You can now use our very own BAT system as the rails to run your practice on, keeping your staff in line, and motivated with some groundbreaking AI tools to check and extract files.